Conscripting the Global Banking Sector: Assessing the Importance and Impact of Private Policing in the Enforcement of U.S. Economic Sanctions ...
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Conscripting the Global Banking Sector: Assessing
the Importance and Impact of Private Policing in
the Enforcement of U.S. Economic Sanctions
Jesse Van Genugten*
ABSTRACT
Tasked with enforcing U.S. economic sanctions promulgated by the White
House, the U.S. Department of the Treasury’s Office of Foreign Asset Control
(OFAC) administers dozens of active sanctions programs. In implementing those
programs, it has designated thousands of individuals and entities as threats to the
national security, foreign policy, or economy of the United States. The agency
simply does not have the capacity, however, to review the billions of global
financial transactions that flow through the banking industry for potential
sanctions violations.
This article seeks to illustrate how the U.S. economic sanctions framework
operates and how OFAC enlists large financial institutions (LFIs) to the cause.
In fact, in the last decade OFAC issued its ten largest penalties for alleged
violations of U.S. sanctions against LFIs, vastly increasing the risk of non-
compliance for global financial entities. In fear of, and in response to, these hefty
financial penalties, LFIs have come to occupy an important role in complying
with, and privately enforcing, U.S. economic sanctions. In light of OFAC’s
approach of incentivizing the establishment of private policing capabilities at
LFIs, this article analyzes the current U.S. economic sanctions framework, the
significant leverage LFIs have in the global enforcement of these sanctions, and,
in turn, the impact the U.S. economic sanctions framework has had on
constructing and transforming LFIs’ internal compliance programs. Ultimately,
the regulatory threat OFAC has at its disposal allows it to enforce an evolving
compliance requirement—incentivizing LFIs to develop and adopt increasingly
complex compliance practices, voluntarily or otherwise.
DOI: https://doi.org/10.15779/Z38S17ST3P
*. Georgetown University Law Center, J.D. 2019; Cornell University, B.A. 2016. The author is a current
Associate in the New York office of Shearman & Sterling LLP. The opinions expressed in this article are
those of the author alone and do not necessarily reflect the views of his employer or clients.
136CONSCRIPTING THE GLOBAL BANKING SECTOR
Abstract .................................................................................................................. 136
Introduction............................................................................................................ 137
I. U.S. Economic Sanctions and the Office of Foreign Asset Control................... 139
A. Legal Framework for U.S. Civil Sanctions ....................................... 140
1. Legal Authority for Economic Sanctions .................................... 140
2. OFAC Jurisdiction and Global Reach ......................................... 143
3. Financial Activities Subject to Enforcement ............................... 145
a. Exempted Transactions & OFAC Licenses ......................... 146
b. Statute of Limitations ........................................................... 147
4. Agency Review & Judicial Intervention ..................................... 148
a. Successful Challenges to OFAC Sanction Decisions .......... 148
b. Addressing the Constitutionality of OFAC Civil Sanctions 150
B. Potential Outcomes of OFAC Investigations .................................... 152
C. Calculating OFAC Sanctions............................................................. 152
1. Aggravating Factors Affecting OFAC Penalty Decisions .......... 153
2. Mitigating Factors Affecting OFAC Penalty Decisions.............. 154
D. Limiting Financial Exposure from Past Actions: Cooperation and Self-
Disclosure .......................................................................................... 154
II. Analyzing the Merits of U.S. Economic Sanctions Policy ............................... 155
III. Private Policing at Large Financial Institutions............................................... 158
A. The Importance of LFIs for the Enforcement of U.S. Sanctions ....... 158
B. The Impact on LFIs: Implementing Compliance Controls as Defined
by U.S. Government “Best Practices” ............................................... 160
1. Current OFAC Compliance Expectations ................................... 161
2. The Technological Evolution of Compliance Programs at LFIs . 161
3. The Issue of Evolving Compliance Standards: Machine Learning
and Big Data in Compliance ....................................................... 163
Conclusion ............................................................................................................. 164
INTRODUCTION
In the last decade, the Office of Foreign Asset Control (OFAC) has employed
the private policing capabilities of large financial institutions (LFIs) 1 as an
enforcement mechanism for the U.S. government’s long list of sanctioned
entities and individuals. It has done so principally by assessing large sanctions
1. For purposes of this article, the definition of Large Financial Institution (LFI) will be taken
from recently promulgated Federal Reserve regulations. The Federal Reserve considers the following two
categories of entities to be LFIs: (1) domestic bank holding companies and non-insurance, non-
commercial savings and loan companies with more than $100 billion in total consolidated assets, and (2)
U.S. intermediate holding companies of foreign banking organizations with more than $50 billion in total
consolidated assets. Large Financial Institution Rating System; Regulations K and LL, 83 Fed. Reg.
58,724 (Nov. 21, 2018). The analysis provided below, however, need not be isolated to such institutions:
it is relevant to different banking entities, regardless of size.
137Berkeley Business Law Journal Vol. 18:1, 2021
against those institutions, raising the financial stakes involved, and forcing the
establishment of comprehensive internal compliance controls and private-sector
review of potentially sanctioned transactions.
Between 2010 and 2019, OFAC assessed nearly $4.9 billion in civil penalties
for U.S. sanctions2 violations, the vast majority of which were directed at LFIs.3
In fact, the ten largest OFAC sanctions arose from comprehensive settlements
with global banking entities, and those ten settlements alone accounted for nearly
$4.3 billion of the $4.9 billion OFAC sought in civil sanctions in the last decade.4
The top-heavy enforcement of sanctions is perhaps unsurprising, however,
given the mission of the agency to eliminate financial transfers to certain blocked
recipients.5 This sanctions regime poses particular risks for financial institutions,
whose client services include processing numerous monetary transactions
between international parties.6 In light of these risks, this article seeks to explore
the complex civil enforcement framework for U.S. economic sanctions and
explain the factors OFAC takes into account in determining the size of the
penalty it will assess against LFIs—including recommendations in its newly
published compliance guide.7
These factors incentivize LFIs to establish and maintain comprehensive
compliance programs. These programs, in turn, serve at the vanguard of U.S.
sanctions enforcement, tracking and flagging suspicious transactions out of an
abundance of caution. After all, compliance efforts can significantly mitigate any
potential financial penalty. This “private policing” by LFIs through the sanctions
framework has two predominant impacts: (1) it reinforces OFAC efforts to
2. OFFICE OF FOREIGN ASSETS CONTROL, OFAC FAQS: GENERAL QUESTIONS,
https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_general.aspx (last visited Feb. 4,
2020) [hereinafter OFAC General Questions] (defining “sanctions” and noting sanctions operate by “using
the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.”).
3. OFFICE OF FOREIGN ASSETS CONTROL, CIVIL PENALTIES AND ENFORCEMENT INFORMATION,
https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/civpen-index2.aspx (last visited Feb.
4, 2020). The settlement agreements for the ten largest civil enforcement actions over the past decade are
available at OFFICE OF FOREIGN ASSETS CONTROL, Additional Select Settlement Agreements,
https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/Additional-Select-Settlement-
Agreements.aspx (last visited Feb. 4, 2020). The ten largest civil enforcement actions over the past decade
were assessed against the following ten entities (listed in order of largest sanction to smallest): BNP
Paribas SA, Standard Chartered Bank, ING Bank N.V., UniCredit Bank AG, HSBC Holdings plc, Crédit
Agricole Corporate and Investment Bank, Commerzbank AG, Barclays Bank PLC, Clearstream Banking,
S.A., and Standard Chartered Bank.
4. OFFICE OF FOREIGN ASSETS CONTROL, CIVIL PENALTIES AND ENFORCEMENT INFORMATION,
https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/civpen-index2.aspx (last visited Feb.
4, 2020) (providing that of approximately $4,875,000,000 in sanctions assessed in the last decade,
$4,273,000,000 came from settlement agreements with the banking entities listed in supra note 3).
5. See OFAC GENERAL QUESTIONS, supra note 2.
6. See, e.g., BNP Paribas SA Settles Potential Civil Liability for Apparent Violations of Multiple
Sanctions Programs 1 (June 30, 2014), https://home.treasury.gov/system/files/126/20140630_bnp.pdf
[hereinafter BNP OFAC Settlement].
7. OFFICE OF FOREIGN ASSETS CONTROL, A FRAMEWORK FOR OFAC COMPLIANCE
COMMITMENTS (2019),
https://home.treasury.gov/system/files/126/framework_ofac_cc.pdf [hereinafter 2019 OFAC Compliance
Policy].
138CONSCRIPTING THE GLOBAL BANKING SECTOR
implement its sanctions framework, and (2) creates the need for continuously
evolving compliance programs at LFIs that capture the newest technological
advances, so as to satisfy shifting OFAC regulatory expectations.
This article will proceed in three parts. The next section will discuss the
history and current legal framework of economic sanctions in the United States.
It likewise will examine the mechanics for calculating OFAC civil sanctions and
steps that LFIs can take to limit financial exposure. Subsequently, the article will
discuss the merits and practicality of economic sanctions as the U.S. government
has used them in recent decades. Finally, it will discuss the impact of private
policing efforts by LFIs, highlighting the institutions’ indispensable role in the
legal framework. It will also discuss the impact of U.S. economic sanctions
enforcement on the standardization of compliance efforts at LFIs, and explore
the issue of evolving compliance expectations for the global banking sector, in
light of potential future technological advancements in the field.
I. U.S. ECONOMIC SANCTIONS AND THE OFFICE OF FOREIGN ASSET
CONTROL
The United States has employed economic sanctions in the pursuit of foreign
policy goals since the founding of the Republic.8 Sometimes referred to as a tool
of “coercive international diplomacy,” these sanctions were implemented against
England before the Revolutionary War, and have retained their political
importance ever since.9 Of course, sanctions policy has become more
sophisticated and targeted since then. Long gone are the days where U.S. trade
embargoes were defined solely by legislation that “prohibited American ships
from leaving for foreign ports and banned the carriage of American goods by
other vessels,” without a reliable means of enforcement.10 But at its core,
economic sanctions and trade restrictions have been an instrument for foreign
policy advocacy for centuries.
The United States executive branch developed the “modern” sanctions
framework in the early stages of the Cold War,11 in response to economic policy
needs that arose during the Korean War.12 Upon entry of China into the war in
1950, President Truman declared a national emergency and blocked access to all
Chinese and North Korean assets subject to U.S. jurisdiction. 13 The executive
branch needed a centralized agency that would be in charge of implementing
8. See SaraBeth Egle, The Learning Curve of Sanctions—Have Three Decades of Sanctions
Reform Taught Us Anything?, 19 CURRENTS: INT’L TRADE L.J. 34, 38 (2011).
9. Id. at 34, 38.
10. Id. at 38 (internal citation omitted).
11. See OFAC GENERAL QUESTIONS, supra note 2.
12. Id.
13. Id.
139Berkeley Business Law Journal Vol. 18:1, 2021
such a wide range of asset restrictions, and thus the Department of Treasury
formally carved out a role for OFAC. 14
The agency’s role has since evolved to cover a significant number of conflict
regions, entities, and designated people.15 Its primary mission is to administer
and enforce economic and trade sanctions in accordance with U.S. foreign
policy.16 It does so by carrying out two broad functions: (1) prohibiting economic
transactions between U.S. citizens and targeted nations, entities, and individuals,
and (2) freezing specific assets subject to agency sanctions.17
A. Legal Framework for U.S. Civil Sanctions
1. Legal Authority for Economic Sanctions
OFAC has been described as “the most powerful yet unknown agency in the
U.S. government.”18 Its broad range of functions “include rulemaking, the
blocking of foreign assets and property in the United States, criminal
enforcement, civil penalties, administrative summons authority, licensing,
compliance, intelligence liaison, and recordkeeping.”19 To assess the impact of
OFAC sanctions on large financial institutions, this article focuses on OFAC’s
civil penalties enforcement power—therein lies the agency’s most significant
leverage for promoting LFI compliance with U.S. sanction regimes.20
OFAC draws its authority from presidential national emergency powers and
takes direction from specific legislation and Executive Orders.21 The
International Emergency Economic Powers Act (IEEPA)22 and the Trading with
the Enemy Act (TWEA)23 serve as the principal statutory bedrock for the
exercise of presidential authority, although there are other acts that play minor
roles in this legal framework.24 The TWEA provides authority during wartime,
14. Id.; see also Samuel Rubenfeld, OFAC Rises as Sanctions Become a Major Policy Tool,
WALL ST. J. (Feb. 5, 2014), http://blogs.wsj.com/riskandcompliance/2014/02/05/ofac-rises-as-sanctions-
becomeamajor-policy-tool (highlighting the notable powers granted to OFAC by the executive branch,
including to freeze assets, bar companies and individuals from accessing the U.S. financial system, and
imposing substantial fines in order to further U.S. foreign policy).
15. Infra note 33 and accompanying discussion.
16. See OFAC GENERAL QUESTIONS, supra note 2.
17. Rudolph Lehrer, Unbalancing the Terrorists’ Checkbook: Analysis of U.S. Policy in Its
Economic War on International Terrorism, 10 TUL. J. INT’L & COMP. L. 333, 336 (2002).
18. Rubenfeld, supra note 14.
19. Kian Arash Meshkat, The Burden of Economic Sanctions on Iranian-Americans, 44 GEO. J.
INT’L L. 915, 928 (2013).
20. See Section IV(B) below.
21. Vanessa Ortblad, Criminal Prosecution in Sheep’s Clothing: The Punitive Effects of OFAC
Freezing Sanctions, 98 J. CRIM. L. & CRIMINOLOGY 1439, 1442–43 (2008).
22. International Emergency Economic Powers Act, Pub. L. No. 95-223, § 202, 91 Stat. 1625,
1626 (1977) (codified at 50 U.S.C. § 1701).
23. Trading with the Enemy Act of 1917, ch. 106, § 1, 40 Stat. 411 (codified at 50 U.S.C. § 4301).
24. See, e.g., International Security and Development Cooperation Act of 1985, Pub. L. No. 99-
83, §§ 501, 503–05-, 99 Stat. 190, 219–22.
140CONSCRIPTING THE GLOBAL BANKING SECTOR
while the IEEPA, enacted 60 years after the TWEA, provides explicit
presidential authority to issue economic sanctions during peacetime.25
To exercise the authority granted by Congress under the IEEPA, the president
must declare a national emergency related to the assets and persons the
administration seeks to target.26 The declaration must show an “unusual and
extraordinary threat, which has its source in whole or substantial part outside the
United States, to the national security, foreign policy, or economy of the United
States.”27 In accordance with the declared national emergency, the president (or
a designated executive agency, like OFAC) has the power to sanction foreign
nations, organizations, or persons identified as contributing to the threat. 28
Specifically, the executive branch can regulate or prohibit transactions involving
property or interests in property of those specified foreign countries, entities, or
individuals.29 The OFAC is authorized to designate certain individuals and
entities as Specifically Designated Nationals and Blocked Persons (SDNs).30
Such designation effectively freezes the property, and interests in property, of
persons on the SDN List and prohibits U.S. persons from transacting with those
persons.31 For the sake of easing external compliance efforts, OFAC provides the
publicly available SDN List on its website.32
Every U.S. president in the last 40 years, since the Iranian Revolution and
hostage crisis, has established, or expanded upon, a sanctions regime enforced
by OFAC. 33 Between November 1979 and January 2020, the various White
House administrations issued over 90 Executive Orders to directly create or
modify targets of the U.S. economic sanctions framework.34 As of January 2020,
there are 32 active sanctions regimes comprised of a diverse set of regulations
aimed at addressing complex international problems, including narcotics
trafficking, the distribution of rough diamonds, and a variety of regional and
25. Danielle Stampley, Comment, Blocking Access to Assets: Compromising Civil Rights to
Protect National Security or Unconstitutional Infringement on Due Process and the Right to Hire an
Attorney?, 57 AM. U. L. REV. 683, 688–89 (2008). The IEEPA serves as the predominant source of
statutory authority, as the U.S. government has not officially declared war in decades.
26. Id. at 689; see 50 U.S.C. § 1701(b).
27. 50 U.S.C. § 1701(b).
28. Stampley, supra note 25, at 689.
29. Victoria Anglin, Note, Why Smart Sanctions Need a Smarter Enforcement Mechanism:
Evaluating Recent Settlements Imposed on Sanction-Skirting Banks, 104 GEO. L.J. 693, 702 (2016).
30. See OFAC GENERAL QUESTIONS, supra note 2.
31. Id.
32. OFFICE OF FOREIGN ASSETS CONTROL, U.S. DEP’T OF THE TREASURY, SPECIALLY
DESIGNATED NATIONALS AND BLOCKED PERSONS LIST (SDN) HUMAN READABLE LISTS,
https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx (last visited Feb. 4,
2020).
33. See OFFICE OF FOREIGN ASSETS CONTROL, U.S. DEP’T OF THE TREASURY, EXECUTIVE
ORDERS (EO), https://home.treasury.gov/policy-issues/financial-sanctions/additional-ofac-
resources/ofac-legal-library/executive-orders-eo (last visited Feb. 4, 2020).
34. Id. (noting that the list only includes a selection of certain Executive Orders; it is not a non-
exhaustive list of every Executive Order that may be related to U.S. sanctions programs).
141Berkeley Business Law Journal Vol. 18:1, 2021
country-specific conflicts in places like Syria and Iran.35 The scope of OFAC
regulations depends largely on the text of the Executive Order that sets the
parameters of the particular sanctions regime.36 The following sections discuss
the mechanisms by which this sanctions framework operates, including the
agency’s jurisdiction to enforce the sanctions and the activities subject to such
enforcement. They also discuss the relationship between the agency and the
judiciary, as well as the constitutional concerns these sanctions raise.
Though there are 32 distinct sanctions regimes, a discussion of all of them
would exceed the scope of this article. Thus, for purposes of condensing the
relevant analysis, the discussion of OFAC jurisdiction and the activities
prohibited under U.S. sanctions law will focus on the specifics of the Iranian
Transactions and Sanctions Regulations (ITSR).37 This selection is not without
reason. In fact, the ITSR served as a basis, at least in part, for each of the ten
largest OFAC enforcement actions in the last decade—all assessed against
LFIs.38
35. See OFFICE OF FOREIGN ASSETS CONTROL, U.S. DEP’T OF THE TREASURY, SANCTIONS
PROGRAMS AND COUNTRY INFORMATION, https://www.treasury.gov/resource-
center/sanctions/programs/pages/programs.aspx (last visited Feb. 4, 2020); see also 31 C.F.R. § 510–598
(2020).
36. See, e.g., Reimposing Certain Sanctions With Respect to Iran, Exec. Order No. 13846, 83
Fed. Reg. 38939 (2018) (providing the contours of the newly reimposed Iranian sanctions).
37. 31 C.F.R. § 560.
38. See BNP OFAC Settlement, supra note 6, at 1; U.S. DEP’T OF THE TREASURY, Barclays Bank
PLC Settles Allegations of Violations of Multiple Sanctions Programs 1 (Aug. 18, 2010),
https://www.treasury.gov/resource-center/sanctions/OFAC-
Enforcement/Documents/barclays08182010.pdf; U.S. DEP’T OF THE TREASURY, HSBC Holdings PLC
Settles Potential Liability for Apparent Violations of Multiple Sanctions Programs (Dec. 11, 2012),
https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/121211_HSBC_posting.pdf;
U.S. DEP’T OF THE TREASURY, Standard Chartered Bank Settles Potential Liability for Apparent
Violations of Multiple Sanctions Programs (Dec. 10, 2012), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/12102012_scb.pdf; U.S. DEP’T OF THE TREASURY, ING Bank N.V.
Settles Potential Liability for Apparent Violations of Multiple Sanctions Programs (June 12, 2012),
https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/06122012_ing.pdf; U.S. DEP’T
OF THE TREASURY, Clearstream Banking, S.A. Settles Potential Liability for Apparent Violations of
Iranian Sanctions 1 (Jan. 23, 2014), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/20140123_clearstream.pdf; U.S. DEP’T OF THE TREASURY, Crédit
Agricole Corporate and Investment Bank Settles Potential Civil Liability for Apparent Violations of
Multiple Sanctions Programs (Oct. 20, 2015), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/20151020_cacib.pdf; U.S. DEP’T OF THE TREASURY, Commerzbank
AG Settles Potential Civil Liability for Apparent Violations of Multiple Sanctions Programs (Mar. 12,
2015), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/20150312_commerzbank.pdf; U.S. DEP’T OF THE TREASURY,
Standard Chartered Bank Settles Potential Civil Liability for Apparent Violations of Multiple Sanctions
Programs (Apr. 9, 2019), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/20190408_scb_webpost.pdf [hereinafter 2019 Standard Chartered
Settlement]; U.S. DEP’T OF THE TREASURY, UniCredit Bank AG Settles Potential Civil Liability for
Apparent Violations of Multiple Sanctions Programs (Apr. 15, 2019), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/20190415_uni_webpost.pdf.
142CONSCRIPTING THE GLOBAL BANKING SECTOR
2. OFAC Jurisdiction and Global Reach
Perhaps unsurprising, the impact of OFAC sanctions is felt on a global scale.
OFAC outlines the scope of its jurisdictional reach as follows:
U.S. persons must comply with OFAC regulations, including all U.S. citizens and
permanent resident aliens regardless of where they are located, all persons and entities
within the United States, all U.S. incorporated entities and their foreign branches. In
the cases of certain programs, foreign subsidiaries owned or controlled by U.S.
companies also must comply. Certain programs also require foreign persons in
possession of U.S.-origin goods to comply.39
There are thus several categories of persons (both legal and natural) subject
to OFAC’s broad authority: (1) U.S. persons,40 (2) foreign entities owned or
controlled by U.S. persons, including foreign subsidiaries of U.S. LFIs,41 (3)
individuals or entities that import goods or services into the United States, 42 (4)
foreign nationals that act from the United States,43 and (5) foreign governments
or instrumentalities thereof.44 The extraterritoriality of the OFAC legal
framework is clearly delineated as the sanctions regulations explicitly state that
the restrictions and prohibitions apply outside the United States.45
Even the most attenuated connections to the U.S. market can suffice for
purposes of OFAC jurisdiction.46 In one instance, the Office sought to establish
jurisdiction over a Taipei-based shipping company called B Whale Corporate
(BWC) exclusively on the company’s court proceedings in the United States.47
OFAC issued a Finding of Violation, the mechanics of which are discussed
below, based on a determination that BWC was a “U.S. person” because it was
“present in the United States for the bankruptcy proceedings when the transaction
39. . See OFAC General Questions, supra note 2 (addressing “who must comply with OFAC
regulations?”).
40. See, e.g., 31 C.F.R. § 560.204.
41. Id. § 560.215. For purposes of this section, an entity is “owned or controlled” by a U.S. person
if that person (a) holds a 50% or greater equity interest by vote or value, (b) holds a majority of seats on
the board, or (c) otherwise controls the actions, policies, or personnel decisions of the entity.
42. Id. § 560.201.
43. See, e.g., id. § 560.204; see also United States v. All Funds on Deposit in United Bank of
Switz., No. 01 Civ. 2091 (JSR), 2003 WL 56999, at *2 (S.D.N.Y. Jan. 7, 2003) (noting the prohibitions
of the ITSR “reaches domestic activities by anyone, whether or not a ‘U.S. person’”).
44. 650 Fifth Ave. v. Alavi Found., 830 F.3d 66, 89–90 (2d Cir. 2016) (noting that 40%
ownership by the Iranian government made the entity in question an instrumentality of the Iranian
government and thus subjected it to U.S. sanctions).
45. See generally, Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247 (2010) (explaining there is
no presumption that federal law is meant to have extraterritorial effect without explicit wording to the
contrary); see also RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090 (2016) (discussing the limited
scope of implied extraterritoriality in the Racketeer Influenced and Corrupt Organizations Act). An in-
depth discussion of implied extraterritoriality is not necessary for purposes of this article, as the text of
the sanctions regulations explicitly extend the prohibitions to U.S. persons “regardless of where they are
located.” See supra note 39 and accompanying text.
46. See Christine Abely, Causing a Sanctions Violation With U.S. Dollars: Differences in
Regulatory Language Across OFAC Sanctions Programs, 48 GA. J. INT’L & COMP. L. 29, 45 (2019).
47. See SHEARMAN & STERLING LLP, SANCTIONS ROUNDUP: FIRST HALF OF 2017 22-23 (2017),
https://www.shearman.com/-/media/Files/NewsInsights/Publications/2017/07/Sanctions-Round-Up-
First-Half-2017-LIT-07062017.pdf [hereinafter SHEARMAN Sanctions Roundup 2017].
143Berkeley Business Law Journal Vol. 18:1, 2021
occurred.”48 Such an expansive view of jurisdiction indicates that OFAC has the
potential to assert authority over any party in a U.S. court proceeding. 49 Other
instances exemplify this dramatic increase of OFAC jurisdiction as well.
The agency’s 2017 civil enforcement action against CSE Global Limited
(CSE) and CSE TransTel Pte. Ltd. (TransTel), both located in Singapore, for
violations of the ITSR serves as an additional illustration of the extent of OFAC
jurisdiction.50 TransTel, a wholly-owned subsidiary of CSE, maintained a U.S.
dollar-denominated bank account at a non-U.S. financial institution located in
Singapore and transferred funds from that bank account to multiple third-party
vendors that supplied goods or services to Iran.51 As a Singapore company
transacting through a Singapore financial institution with third parties located in
Iran, the sole initial connection to the United States was the designated currency
of the company’s bank account and the transactions in question.52 Due to the
U.S. dollar denomination, however, the transactions “were processed through the
United States and caused multiple financial institutions—including several U.S.
financial institutions—to engage in the prohibited exportation or re-exportation
of financial services from the United States to Iran.”53 OFAC deemed such
foreign transactions to have “caused a violation” of the ITSR sanctions regime,
and accordingly exposed TransTel to enforcement penalties.54
Notably, in Jesner, a Supreme Court case addressing the vast jurisdictional
reach of the Alien Tort Statute (ATS), Justice Kennedy explains the common
nature of such U.S. dollar transactions at foreign financial institutions, stating
“[f]oreign banks often use dollar-clearing transactions to facilitate currency
exchanges or to make payments in dollars from one foreign bank account to
another.”55 The U.S. government’s reliance on this attenuated jurisdictional hook
is not without controversy, however. Kennedy, writing for the majority noted in
dicta that “it could be argued . . . in this case the activities of the defendant
corporation and the alleged actions of its employees have insufficient
48. U.S. DEP’T OF THE TREASURY, OFAC Issues a Finding of Violation to B Whale Corporation,
a Member of the TMT Group of Shipping Companies, for a Violation of the Iranian Transactions and
Sanctions Regulations (Feb. 3, 2017), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/20170203_bwc.pdf.
49. SHEARMAN, supra note 47, at 23 (noting OFAC asserted jurisdictional grounds on the basis
of the bankruptcy proceedings as well as that the ship was property within the jurisdiction of the U.S.
bankruptcy court).
50. U.S. DEP’T OF THE TREASURY, CSE Global Limited and CSE TransTel Pte. Ltd. Settle
Potential Civil Liability for Apparent Violations of the International Emergency Economic Powers Act
and the Iranian Transactions and Sanctions Regulations (July 27, 2017),
https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20170727_transtel.pdf.
51. Id. at 2.
52. U.S. DEP’T OF THE TREASURY, CSE Global Limited and CSE TransTel Pte. Ltd. Settlement
Agreement (Jul. 15, 2017), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/transtel_settlement.pdf [hereinafter Transtel OFAC Settlement
Agreement].
53. Id. at 3.
54. Id.; see also 31 C.F.R. § 560.204; 50 U.S.C. § 1705(a).
55. Jesner v. Arab Bank, PLC, 138 S. Ct. 1386, 1394 (2018).
144CONSCRIPTING THE GLOBAL BANKING SECTOR
connections to the United States to subject it to jurisdiction under the ATS.”56
This leaves the door open for future litigants to dispute the jurisdictional reaches
of the U.S. sanctions framework. But, as it stands, OFAC jurisdiction extends
even to foreign transactions routed through the United States by virtue solely of
their currency designation. Accordingly, LFIs located in foreign jurisdictions
must remain wary of the lengthy grasp of the U.S. sanctions framework.
With the global reach of OFAC sanctions established above, the next section
explores the prohibited activities covered by U.S. sanctions policy—looking
again at the statutory language of the ITSR. While this list is not exhaustive and
applies only to the ITSR sanctions regime, it provides a close look at an
archetypal legal framework for purposes of this discussion.
3. Financial Activities Subject to Enforcement
In an attempt to isolate Iran’s financial systems, the United States prohibits
a variety of different activities, including: (1) the importation of goods or services
from Iran,57 (2) the export, re-export, sale, or supply of goods, technology, or
services to Iran,58 (3) trade-related transactions with the Government of Iran,59
(4) any investment or transfer by a U.S. person in Iran or in property owned or
controlled by the Government of Iran,60 (5) any financing or facilitating of a
transaction by a foreign person where the transaction would be prohibited if
performed by a U.S. person or within the United States,61 and (6) contracting for
the supervision and management responsibility for the development of petroleum
resources in Iran.62 Notably, such transactions are subject to civil enforcement
penalties even if the investigated entity did not take the action willfully, as U.S.
sanctions operate on a strict liability standard.63
56. Id. at 1398. Notably, such an expansive notion of jurisdiction is also common in Foreign
Corrupt Practices Act (FCPA) enforcement by the Department of Justice and Securities and Exchange
Commission. In the Snamprogetti FCPA enforcement action in 2010, for example, the jurisdictional hook
rested on transfers from a bank account in Amsterdam, the Netherlands, to bank accounts in New York,
to be further credited to bank accounts in Switzerland and Monaco. The funds were then used to bribe
Nigerian officials, but at no point were funds transferred directly from a U.S. financial institution to
foreign officials. See Deferred Prosecution Agreement, United States v. Snamprogetti Netherlands B.V.,
No. 4:10-CR-00460 (S.D. Tex. July 7, 2010), https://www.justice.gov/sites/default/files/criminal-
fraud/legacy/2011/02/16/07-07-10snamprogetti-dpa.pdf.
57. 31 C.F.R. § 560.201.
58. Id. § 560.204.
59. Id. § 560.206.
60. Id. §§ 560.207, 560.211.
61. Id. § 560.208.
62. Id. § 560.209.
63. See Sidne Koenigsberg & Gregory Vianesi, The EU and U.S. Russia and Ukraine Sanctions
Programs: Comparisons and Perspectives, 1 REVUE DE DROIT FINANCIER 71, 78 (2018). Willfulness is
taken into account, as discussed in Section II(C)(1) below, as an aggravating factor for calculating the
sanction penalty, but a lack thereof ultimately does not sever liability. See also, e.g., 31 C.F.R. § 560.201
(lacking intent requirement in respect of the prohibition on the importation of goods or services from Iran).
145Berkeley Business Law Journal Vol. 18:1, 2021
a. Exempted Transactions & OFAC Licenses
Transactions of the kind listed above, while otherwise prohibited, can be
exempted in two ways. First, the applicable regulation can spell out specific
categories of transactions that are not punishable by OFAC. 64 Under the ITSR,
the following actions are exempted: (1) personal communications that do not
involve the transfer of anything of value,65 (2) humanitarian donations intended
to be used to relieve human suffering,66 (3) informational material,67 (4)
transactions incident to travel to and from any country,68 (5) any official business
of the U.S. government by its employees or contractors, 69 and (6) certain
noncommercial, personal remittances.70
Second, OFAC can issue a license to authorize a transaction that would be
prohibited otherwise. 71 There are two types: “general licenses” and “specific
licenses.”72 General licenses issued by OFAC authorize a particular type of
transaction for a class of persons without the need to apply for individual
licenses, whereas a specific license is a written document issued by OFAC to a
person or entity, authorizing a particular transaction in response to a written
application.73
General licenses are published on the OFAC website and authorize
designated actors to engage in specified activities. However, they do not provide
blanket protections, as only certain official activities are covered by such general
licenses, and they are associated exclusively with the sanctions regime under
which they are issued.74 For example, general licenses associated with the ITSR
allow U.S. depository institutions to provide and be compensated for maintaining
Iranian accounts, other than blocked accounts, as would be relevant to some
LFIs.75 General licenses also permit certain academic exchanges by U.S.
educational institutions,76 or transactions necessary and ordinarily incident to
64. 31 C.F.R. § 560.210.
65. Id.
66. Id.
67. Id.; 31 C.F.R. § 560.315. The exemption for information and informational material is limited
in scope. The text of the regulation restricts the exemption for informational materials used for marketing
or business consulting services, the provision of services to market or create the informational material,
and payment of royalties in relation to the informational materials. See also 31 C.F.R. § 560.210(c)(2).
68. 31 C.F.R. § 560.210.
69. Id.
70. Id. § 560.550; see also United States v. Banki, 685 F.3d 99, 109 (2d Cir. 2012).
71. 31 C.F.R. § 501.801.
72. Id.
73. See 31 C.F.R. § 501.801 (noting the mechanics of issuing general and specific licenses).
74. See, e.g., 31 C.F.R. § 560.539 (noting that certain official activities of certain International
Organizations, including the United Nations and the World Bank, are authorized as part of a general
license).
75. Id. § 560.517.
76. Id. § 560.544.
146CONSCRIPTING THE GLOBAL BANKING SECTOR
publishing manuscripts, books, journals, and newspapers—with important
exceptions that include working for the benefit of the Government of Iran. 77
Specific licenses, on the other hand, permit a named licensee to engage in
particular conduct that would otherwise constitute a sanctions violation.78 Unlike
general licenses, they must be applied for.79 Federal regulations can provide
some guidance on what specific licenses OFAC may issue. For instance,
“[s]pecific licenses may be issued with respect to the operation of Iranian
accounts that constitute accounts of . . . foreign government missions and their
personnel in Iran, or diplomatic missions of the Government of Iran to
international organizations.”80 These published regulations by no means serve as
the only guideposts for the issuance of specific licenses; in fact, each application
is reviewed on a “case-by-case basis” and no license issuance is guaranteed.81
Ultimately, these licenses provide OFAC with flexibility to tailor the various
sanctions regimes to reflect evolving U.S. foreign policy objectives. 82
Importantly, taking advantage of the licensing authorization still requires
compliance with the terms and limits as defined by the general and specific
licenses, which may include additional reporting requirements. 83
b. Statute of Limitations
OFAC enforcement of these activities is further constrained by statutory time
restrictions. The statute of limitations for OFAC to bring civil penalty actions is
five years from the date of the offending conduct,84 although some tolling
arrangements can be made between the agency and the investigated entity to
show a willingness to cooperate with the investigation.85 For example, such an
arrangement was agreed to in OFAC’s investigation of the British Arab
Commercial Bank plc in 2019, and it served as a mitigating factor for deciding
the sanction penalty amount.86 The bank fully cooperated with the agency and
agreed to toll the statute of limitations for the duration of the investigation, thus
77. Id. § 560.538. Other notable exceptions include providing or receiving individualized or
customized services, exporting goods from Iran other than embedded software necessary for reading a
written publication, or operating a publishing house in Iran.
78. Perry S. Bechky, Sanctions and the Blurred Boundaries of International Economic Law, 83
MO. L. REV. 1, 8 (2018); 31 C.F.R. § 501.801.
79. 31 C.F.R. § 501.801.
80. 31 C.F.R. § 560.517(c).
81. 31 C.F.R. § 501.801
82. Bechky, supra note 78, at 7-8.
83. Id. at 8.
84. See Sacks v. Office of Foreign Assets Control, 466 F.3d 764, 774 (9th Cir. 2006) (citing 28
U.S.C. § 2462) (noting that OFAC must bring a civil enforcement action in five years from the date of the
act).
85. 31 C.F.R. § 501, App. A § III(G)(6).
86. U.S. DEP’T OF THE TREASURY, British Arab Commercial Bank PLC Settles Potential Liability
for Apparent Violations of the Sudanese Sanctions Regulations 2 (Sept. 17, 2019),
https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20190917_bacb.pdf.
147Berkeley Business Law Journal Vol. 18:1, 2021
extending the statute past the original five years.87 In the absence of such an
agreement, however, OFAC generally cannot penalize conduct from more than
five years ago.88 Additional limits to OFAC power are discussed in the next
section, which explores the limited role of the federal judiciary in checking
OFAC’s vast authority.
4. Agency Review & Judicial Intervention
Individuals and entities seeking to enlist judicial intervention for sanctions
issued by OFAC can do so under the Administrative Procedures Act (APA). As
with other administrative actions, the APA provides a person adversely affected
by an OFAC action “judicial review thereof.”89 The agency’s action would be
set aside if it is arbitrary, capricious, an abuse of discretion, otherwise not in
accordance with law, or afoul of constitutional obligations. 90 There has been
remarkably limited success on this front, however, with only a few marquee
cases leading the way.91
a. Successful Challenges to OFAC Sanction Decisions
Only two cases have successfully challenged OFAC civil sanctions, and
neither defendant was an LFI.92 One such case arose from a sanction decision
issued by OFAC against Exxon Mobil Corporation (Exxon) in 2017 for its
business in Russia, which the corporation vehemently contested.93 Exxon argued
that it did not have “fair notice” that its specific conduct was prohibited under
OFAC regulations, and, perhaps surprisingly, given OFAC’s track record in front
of the federal judiciary, the District Court judge agreed with Exxon’s claim.94 In
87. Id.
88. See Sacks, 466 F.3d at 774.
89. 5 U.S.C. § 702.
90. See Elena Chachko, Due Process Is in the Details: U.S. Targeted Economic Sanctions and
International Human Rights Law, 113 AM. J. INT’L L. UNBOUND 157, 160 (2019) (quoting 5 U.S.C. §
706(2)(A)).
91. See SHEARMAN & STERLING LLP, SANCTIONS ROUNDUP: FOURTH QUARTER 2019 12-13
(2020), https://www.shearman.com/-/media/Files/Perspectives/2020/01/Sanctions-Round-Up-Fourth-
Quarter-2019-LIT-11420.pdf [hereinafter SHEARMAN Sanctions Roundup Q4 2019] (noting that the
Exxon Mobil case, discussed below, “represent[s] a rare loss for OFAC.”); see also Epsilon Electronics,
Inc. v. U.S. Dep’t of the Treasury, 857 F.3d 913 (D.C. Cir. 2017) (reviewing a civil penalty of $4,073,000
for exportation of certain audio equipment to Iran in violation of U.S. sanctions).
92. Search of WESTLAW, Federal Cases database (search terms: “Administrative Procedure Act”
& TI (“Office of Foreign Assets Control”)) (last visited Oct. 17, 2020). The author reviewed and analyzed
the cases that fit the WestLaw search terms, which narrows down federal cases that have cited the
Administrative Procedures Act and have a party-name that includes the Office of Foreign Assets Control.
Of the thirty-two results, only two cases fit the criteria.
93. U.S. DEP’T OF THE TREASURY, ExxonMobil Corporation Assessed a Penalty for Violating the
Ukraine-Related Sanctions Regulations 1 (July 20, 2017), https://www.treasury.gov/resource-
center/sanctions/CivPen/Documents/20170720_exxonmobil.pdf; see also Exxon Mobil Corp. v.
Mnuchin, 430 F.Supp.3d 220 (N.D. Tex. 2019) (noting the agency issued its $2,000,000 penalty nearly
three years after OFAC issued an administrative subpoena based on its “reason to believe” Exxon violated
U.S. sanctions).
94. Exxon, 430 F.Supp.3d 220 (N.D. Tex. 2019) at 232.
148CONSCRIPTING THE GLOBAL BANKING SECTOR
2014, the Obama Administration, in response to Russia’s invasion and
annexation of Crimea, issued two Executive Orders that laid out the specifics of
a new Ukraine-Russia sanctions regime.95 Under the authority of the Executive
Orders and the newly-minted Ukrainian sanctions, OFAC designated Igor
Sechin, the president and chairman of the board of Russian petroleum giant
Rosneft, as a SDN.96 In a press release, OFAC specifically stated, however, that
Rosneft “[had] not been sanctioned,” even though OFAC regulations specify that
entities “owned or controlled by persons” on the SDN List are designated as their
owner would be.97 Continuing a decades-long business relationship, Exxon
executed eight contracts with Rosneft after the Ukrainian sanctions had been
implemented and, notably, Igor Sechin signed each of those eight contracts even
though he was on the SDN List. Exxon never sought guidance from OFAC prior
to executing the contracts with Sechin as a representative of Rosneft.98 The court
found that because OFAC had not designated Rosneft, and Sechin did not own
or control Rosneft, Exxon had no fair notice of its wrongdoing.99 After all, the
“burden of providing fair notice remains with the agency—not the regulated
party.”100 This gave Exxon its sought-after judicial relief from OFAC’s sanction
decision.
In another recent case, the D.C. Circuit Court issued an order remanding an
OFAC civil penalty decision issued against Epsilon Electronic, Inc. (Epsilon). 101
On remand, the court instructed the agency to recalculate its original penalty in
accordance with the order.102 The regulatory regime implicated in Epsilon, the
ITSR, prohibits exports to a third country if the person has “knowledge or reason
to know that the goods are intended specifically for reexportation to Iran.”103 The
mens rea requirement of this particular prohibition was central to Epsilon’s
challenge; the company claimed that OFAC’s determination that Epsilon knew
or had reason to know that the final five shipments in question were intended for
reexport to Iran was “arbitrary and capricious.”104 The court found this claim
credible,105 pointing to the agency’s failure to adequately explain why it
95. SHEARMAN, supra note 911 at 12.
96. Id.
97. Exxon, 430 F.Supp.3d at 241.
98. Id. at 227.
99. Id. at 230, 242.
100. Id. at 237 (noting OFAC must “state with ascertainable certainty what is meant by the
standards it has promulgated.”) (citing Diamond Roofing Co. v. Occupational Safety and Health Review
Comm’n, 528 F.2d 645, 649 (5th Cir. 1976)).
101. Epsilon Elecs, Inc. v. U.S. Dep’t of the Treasury, 857 F.3d 913 (D.C. Cir. 2017) (reviewing
a civil penalty of $4,073,000 for exportation of certain audio equipment to Iran in violation of U.S.
sanctions).
102. Id. at 929.
103. Id. at 917.
104. Id. at 927 (noting that “[a]lthough a court applying the APA’s arbitrary-and-capricious
standard is not to substitute its judgment for that of the agency, the agency must articulate a satisfactory
explanation for its action including a rational connection between the facts found and the choice made.”
(internal citations omitted)).
105. Id. at 929.
149Berkeley Business Law Journal Vol. 18:1, 2021
discounted certain evidence that the company lacked knowledge, including
emails suggesting the goods were supposed to be sold in Dubai, rather than in
Iran.106 The court ruled that OFAC would have to reconsider the liability
associated with the final five shipments and recalculate the total monetary
penalty imposed for all shipments in question.107
These mild blemishes on OFAC’s otherwise spotless judicial record serve as
a reminder of the role of the judiciary—albeit a limited one—in protecting
persons subject to OFAC sanctions. In a similar vein, the next section discusses
the constitutional protections associated with OFAC civil penalties.
b. Addressing the Constitutionality of OFAC Civil Sanctions
As with other civil enforcement investigations, several constitutional
provisions define the outer boundaries of acceptable agency action. There are
interesting constitutional questions regarding OFAC’s designation power (its
authority to place individuals and entities on various sanctions lists),108 but such
an analysis falls outside the scope of this article. The constitutional clauses
relevant for the imposition of civil sanctions are the Due Process Clause and the
Excessive Fines Clause.109 Notwithstanding the overwhelming tendency of
corporate entities to settle civil or criminal sanctions behind closed doors rather
than challenging such penalties in court,110 these clauses provide an explicit
avenue for judicial review of agency fines.111
106. Id. at 927.
107. Id. at 930.
108. See, e.g., KindHearts for Charitable Humanitarian Dev. v. Geithner, 647 F. Supp. 2d 857
(N.D. Ohio 2009) (challenging OFAC determination that non-profit was Specially Designated Global
Terrorist (SDGT) on Fourth and Fifth Amendment grounds); see also LON E. MUSSLEWHITE, A FEDERAL
COURT LIMITS TREASURY’S INVESTIGATIVE POWERS, 20 TAX’N EXEMPTS 17 (2010) (providing a succinct
analysis of the Kindhearts case); Fares v. Smith, 249 F. Supp. 3d 115 (D.D.C. 2017) (unsuccessfully
challenging Specially Designated Narcotics Trafficking (SDNT) designation based on due process
violations); Chichakli v. Szubin, 546 F.3d 315 (5th Cir. 2008) (unsuccessfully challenging OFAC freezing
of assets based on due process violation); Capital Cities/ABC, Inc. v. Brady, 740 F. Supp. 1007 (S.D.N.Y.
1990) (unsuccessfully challenging amendment to Cuban sanctions on First Amendment grounds); Al
Haramain Islamic Foundation, Inc. v. U.S. Dep’t of the Treasury, 686 F.3d 965 (9th Cir. 2012) (noting
OFAC violations of procedural due process were harmless); Marshall v. Jerrico, Inc., 446 U.S. 238, 243
(1980) (noting “there are ‘constitutional constraints applicable to the decisions of an administrator
performing prosecutorial functions.’”).
109. U.S. CONST. amends. V, VIII; see also PAUL D. CLEMENT, CONSTITUTIONAL
CONSTRAINTS: PROVISIONS LIMITING EXCESSIVE GOVERNMENT FINES, U.S. CHAMBER INSTITUTE FOR
LEGAL REFORM 2 (2015) (noting that chief among restraints on the government ability to impose civil
fines are the Excessive Fines Clause and the Due Process Clause).
110. See, e.g., Peter J. Henning, The Organizational Guidelines: R.I.P.?, 116 YALE L.J. POCKET
PART 312 (2007), http://yalelawjournal.org/forum/the-organizational-guidelines-rip (“[T]he mere threat
of criminal prosecution is enough to cause even the largest corporation to cower. Few companies are
willing to risk an indictment, much less a criminal trial . . . alternatives do exist: deferred and non-
prosecution agreements offer corporations the chance to avoid indictment altogether.”).
111. CLEMENT, supra note 109, at 18 (“[A] due process right to have the scope of constitutional
rights determined by an independent judicial body” has been “long recognized.”).
150CONSCRIPTING THE GLOBAL BANKING SECTOR
The Constitution guarantees due process in the face of a deprivation of
property, which includes the government’s issuance of civil penalties.112 The
Fifth Amendment’s due process guarantee limits OFAC’s ability to seize assets
without providing the target with notice or a meaningful opportunity to rebut the
agency’s evidence in a proceeding or hearing.113 However, there are few insights
into what a successful defense in a hearing or proceeding might look like given
the dearth of constitutional challenges—especially successful ones.
Nevertheless, the fair notice requirement gave rise to some judicial relief in
Exxon v. Mnuchin, one of two cases where OFAC civil sanctions were
successfully challenged. In Exxon, the court noted that the Due Process Clause
requires that laws provide fair notice of conduct that is forbidden or subject to
penalty.114 Therefore, OFAC regulations must state which actions fall within the
scope of sanctionable conduct, such that an entity reviewing the regulations in
good faith could identify, with ascertainable certainty, the agency’s standards.115
In the absence of clear guidance, where a target could not identify what
constituted a prohibited transaction, this lack of fair notice may violate the Due
Process Clause and warrant a rare finding in favor of the penalized company. 116
In addition to the Fifth Amendment protections, the Excessive Fines Clause
of the Eight Amendment confines the scope of agency actions against targets of
OFAC investigations.117 It requires, under the principle of proportionality, that
the amount of the civil sanction bears some relationship to the gravity of the illicit
conduct.118 The burden of proving such disproportionality, and thus negating the
penalty, rests with the targeted entity.119 No target has successfully challenged
an OFAC sanctions penalty under this Clause. Nonetheless, it remains an
important protection against arbitrary and abusive government conduct at its
extremes.120 Mindful of these constitutional boundaries, OFAC has a multitude
of constitutional options it can pursue at the end of its investigations, which are
discussed in the next section.
112. Id. at 14.
113. See Epsilon Electronics, Inc. v. U.S. Dep’t of the Treasury, 857 F.3d 913, 931 (D.C. Cir.
2017).
114. Exxon Mobil Corp. v. Mnuchin, 430 F.Supp.3d 220, 229 (N.D. Tex. 2019) (citing FCC v.
Fox Television Stations, Inc. 567 U.S. 239, 253 (2012)).
115. Id. at 230.
116. Id. at 243.
117. CLEMENT, supra note 109, at 8.
118. Sanders v. Szubin, 828 F. Supp. 2d 542, 554 (E.D.N.Y. 2011) (finding the plaintiff’s
Excessive Fines argument against OFAC’s sanction determination lacked merit).
119. Id. at 553 (noting the court looks at four factors: “[1] the essence of the crime of the
defendant and its relation to other criminal activity, [2] whether the defendant fit[s] into the class of
persons for whom the statute was principally designed, [3] the maximum sentence and fine that could have
been imposed, and [4] the nature of the harm caused by the defendant’s conduct.”).
120. CLEMENT, supra note 109, at 11.
151Berkeley Business Law Journal Vol. 18:1, 2021
B. Potential Outcomes of OFAC Investigations
The guidelines appended to the statutory foundation for OFAC investigations
provide that the Office can pursue one or more of the following steps: (1) take
no action, (2) request additional information, (3) issue a cautionary letter, (4)
issue a “Finding of Violation,” (5) assess a civil monetary penalty, (6) refer the
matter to appropriate law enforcement agencies for criminal investigation, (7)
deny, suspend, modify, or revoke an OFAC license, and/or (8) issue a “Cease
and Desist Order.”121 Given this menu of options, OFAC’s course of action is
individualized and fact-specific.122 All of these options are self-explanatory,
except the Finding of Violation. Within the hierarchy of options—between
taking no action and issuing a sanctions penalty—OFAC uses the Finding of
Violation option as an intermediate response. This option largely serves as a
reporting mechanism123 that the agency uses when it uncovers a sanctions
violation, but does not believe a civil penalty would be appropriate.124 As a result,
this outcome amounts to a mere slap on the wrists of the investigated entity, and
in the face of the considerable size of many sanctions penalties, as discussed in
the next section, this outcome can present the best case scenario for the
investigated entity.
C. Calculating OFAC Sanctions
The IEEPA, the legal basis for the vast majority of OFAC’s active sanctions
programs, provides statutory maximums for any violation of OFAC regulations
issued under the purview of the Act.125 For every violation, the Act authorizes
OFAC to assess civil penalties not to exceed the greater of $250,000, or twice
the amount of the punishable transaction.126 However, this statutory cap provides
little cover for LFIs subject to OFAC investigations. The cap applies to every
illicit transaction the banking entity has processed, which means multiple
transactions compound the final penalty determination.
An example of this statutory cap in action best illustrates this point. In 2014,
OFAC concluded its investigation into a global financial institution for apparent
violations of multiple sanctions programs.127 In assessing the civil penalty
associated with violations of the ITSR, OFAC reviewed 318 wire transfers and
determined a base penalty of nearly $2.4 billion for that set of violations. 128 The
entire settlement agreement included thousands more transactions and the
121. 31 C.F.R. § 501, App. A § II(A)-(G) (2020).
122. Id.
123. Id. § 510.705(a)(1)(ii) (2020).
124. See Danforth Newcomb & Tammy Bieber, New Enforcement Guidelines for Economic
Sanctions Violations, 27 BANKING & FIN. SERVICES POL’Y REP. 6, 8 (2008).
125. 50 U.S.C. § 1705.
126. Id.
127. See BNP OFAC Settlement, supra note 6, at 1.
128. Id. at 2.
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